SEALED BIDS

The sealed bid method of contracting is used to select contractors solely on the basis of the lowest price, when certain FAR conditions permit. The sealed bid method can be used if: (1) time permits; (2) award is based on price (i.e., not cost) and price-related factors; (3) discussions with the bidders are unnecessary; and (4) more than one sealed bid is expected. The sealed bid method of contracting operates most effectively when two conditions exist:

1. The government is able to describe its needs in sufficient detail to permit bids to be prepared and evaluated on a common basis.

2. The number of competitors and the quantity being purchased are sufficient to ensure real competition.

The government’s requirements and the terms and conditions of the proposed contract are announced publicly and circulated widely to potential bidders by way of an Invitation for Bids (IFB). Formal advertising eliminates the need for the government to negotiate with competitors about their bids and provides an objective means for distinguishing among capable competitors. Essentially, the government feels confident that the established market price has been subject to arm’s-length transaction. Furthermore, the government is focusing on price and not on contractor cost and profit.

A sealed bid effectively serves as a contract offer. It may be withdrawn or modified before opening, but once opened, a bid generally cannot be revoked or modified. In developing a bid price under a sealed bid solicitation, the contractor is responsible for estimating cost and profit in any manner deemed appropriate to best accomplish its objectives. Contractors submit price information only; they do not have to disclose cost data and profit rates to the government.

The contractor’s bid need not be based on cost. Instead, it may be based primarily on the contractor’s assessment of its risk and its competitive position. For example, if the contractor has a unique item that no one else can sell, its price—and therefore its profit—might be higher. If the contractor is trying to break into a market, its price might be lower to meet or beat the competition. Similarly, a contractor operating at full capacity may decide to increase its estimated labor costs because overtime will be required to accomplish the work. In this case, the contractor may feel comfortable increasing its profit rate as well. Conversely, a contractor operating at less than full capacity, or one relatively new to the industry, may determine that a more aggressive price and lower profit are required to win the contract. Of course, the contractor must balance its form of pricing against the risk as well as its ability to absorb any potential loss.

When preparing a response to a sealed bid solicitation, a contractor must be sensitive to 41 U.S.C. 253(B)(e) and 10 U.S. C. 2305(b) (5). The objective of these laws is to ferret out antitrust violations—practices by contractors designed to eliminate competition or restrain trade. This order requires government agencies to report to the attorney general each sealed bid procurement over $10,000 that involves identical bids. Identical bids are defined as two or more bids that are identical in terms of unit price or total amount after giving effect to discounts and all other relevant factors. Contracts resulting from sealed bidding are to be firm-fixed-price contracts or fixed-price contracts with economic price adjustment.